Economic Growth and Public Policy

Flashcards covering public policy, capital, and economic growth.

How can government policies affect long-run growth in productivity and living standards?

Policies that raise saving and investments, but faster economic growth is temporary due to diminishing returns to capital.

What is the diminishing returns to capital?

As capital increases, the extra output from an additional unit of capital decreases.

What is the catch-up effect?

Poorer countries tend to grow more rapidly than richer ones due to a smaller capital base.

What are foreign direct investments?

Capital investment owned and operated by a foreign entity.

What are foreign portfolio investments?

Capital investment financed with foreign money but operated by domestic entities.

What are some policies that increase human capital?

Investing in public schools and providing subsidized loans for college education.

What is a well-functioning legal framework?

Well-defined and enforced property rights.

What are inward-oriented economic policies?

Policies that isolate the domestic marketplace from the global economy.

What are outward-oriented economic policies?

Policies that promote integration with the global economy.

What are some policies to promote technological progress?

Patent laws, tax incentives, direct support for private sector R&D, and grants for basic research at universities.

What are three ways population growth may affect living standards?

Stretching natural resources, diluting the capital stock, and promoting technical progress.